Note: This report is a
condensed version of a series featured in the
Yomiuri Shimbun, highlighting Japan's resource
anxieties in the context of rising China-Japan
tensions over issues that include the struggle for
scarce oil and other natural resources and the
voracious quest for energy by Japan's rapidly
growing neighbor. The conflict is set within a
global milieu in which oil prices are soaring
above US$60 a barrel, the consumption of China,
India, the US and a number of other powers
continues to rise, and nations seek to secure
access to oil and national gas supplies that show
strong signs of reaching a tipping point at which
demand exceeds supply.

Planning national
strategiesCountries around the world are
competing for natural resources. A dispute over
maritime resources in the East China Sea, for
example, is one of the reasons anti-Japanese
demonstrators in China have criticized Japan.
Japan, which relies on other countries for most
natural resources, is now thinking seriously about
the changes taking place.

The East China
Sea is now called the "sea of conflict". While
China is exploring natural gas fields near the
Japan-China median line in the East China Sea,
Japan has asked Beijing to suspend exploration on
the grounds that marine resources on the Japanese
side could be accessed by China.

On the
evening of January 22, tension mounted over the
sea of conflict.

Japan's Air Self-Defense
Force base in Naha was ordered to dispatch P3-C
surveillance aircraft to confirm the presence of
and photograph two Chinese navy Sovremenny class
missile destroyers that were reported to be
cruising in waters near the Japan-China median
line.

The Sovremenny class destroyers
are high-tech battleships purchased by the Chinese
navy from Russia. The anti-ship cruise missiles
carried by the destroyers are reputed to be among
the best in the world.

Forty-five minutes after
the order to scramble, the P3-C aircraft spotted
two gray destroyers that were cruising toward
the Ramform Victory, a Norwegian ocean survey
vessel chartered by Japan. Officials of the Economy,
Trade and Industry Ministry's Energy Agency
in charge of the survey were tense after receiving
the report from the Defense Agency. They
reportedly thought that they should ask the ship
to temporarily halt its survey and leave the area
if P3-C pilots believed the Norwegian ship was in
danger.

Senior Energy Agency officials
focused their attention on surveillance reports
from the P3-C. The two destroyers cruised on a
zigzag course, closing in on and pulling away from
the Norwegian ship alternately. The ships returned
to China late at night.

On April 1, the
government released survey findings that China's
Chunxiao and Duanqiao gas fields are linked to
Japan's gas fields. As a countermeasure, the
government plans to begin procedures in the near
future to grant private developers the right to
test-drill on the Japanese side of the median
line.

China may step up efforts to hamper
test drilling by Japanese developers once drilling
begins. This will test the government's resolve to
take a firm stand. With a sharp increase in demand
for energy as a result of its rapid economic
growth, China is not only trying to develop gas
fields in the East China Sea, but also is stepping
up efforts to buy resources from other countries.
Its voracious appetite for energy has become a
destabilizing factor in the international energy
market.

The impact will be great for
Japan, which relies heavily on other countries for
natural resources.

The Center for Safety
and Security Research (CSSR), a research institute
under the Education, Science and Technology
Ministry, has released a report on two crisis
scenarios concerning China that predict China's
actions regarding energy and their impact on
Japan.

The first scenario is a battle over
energy sources. It assumes that if China
reinforces its procurement of energy without
taking cost efficiency into consideration, the
world will be plunged into a situation in which
each country competes for oil by ignoring
international market mechanisms. As a result,
political tension between the two countries over
resources in the East China Sea will mount.

The second scenario assumes the isolation
of Japan. If China succeeds in concluding
free-trade agreements (FTAs) with Southeast Asian
countries, their reliance on China will increase,
leading to the isolation of Japan.

Both
scenarios portray a shocking future for Japan.

Tokyo University Professor Horii Hideyuki,
head of the CSSR, said the crisis scenarios
modeled worst-case situations in order to work out
what measures Japan should take. There is no
guarantee that one of the worst-case scenarios
will not come true if Japan sits on its hands.

Chinese leaders are taking the initiative
in securing the natural resources that are vital
for its economic growth. In November, Chinese
President Hu Jintao visited four South and Central
American countries. The agreement China signed
with Brazil incorporated joint development of
undersea oilfields off Brazil and joint
construction of a natural gas pipeline in the
country. China also discussed with Chile, the
largest producer of copper in the world, a plan to
jointly develop copper mines.

In January,
Vice President Zeng Qinghong visited Venezuela, a
member of the Organization of Petroleum Exporting
Countries, to sign an agreement on 19 cooperation
items, including one to facilitate oil trade.
Prime Minister Wen Jiabao has also recently
visited India.

The countries with which
China is proposing joint development of oilfields
include Sudan, which the US says is supporting
terrorism, and Myanmar, which is controlled by a
military junta. A high-ranking Trade Ministry
official said these were problematic countries the
international community keeps at arm's length.

China's powerful energy diplomacy seems to
indicate Beijing is heading toward the battle for
natural resources described by the CSSR in its
crisis scenario.

Chinese leaders are also
proposing FTAs to countries rich in resources to
deepen its economic ties with them.

Mimuroto Yoshimitsu, a board member of the
Institute of Energy Economics, Japan, who took
part in formulating the crisis scenarios, said
China was a country that exercised heavy state
power, but it would gradually become a more open
country because such a policy leads to a dead-end.

Japan has established a body to study the
signing of an FTA with Chile and plans to begin
free-trade agreement talks with Australia, one of
the world's top iron ore producers.

But
the Agriculture, Forestry and Fisheries Ministry
and Liberal Democratic Party lawmakers
representing agricultural interests are reluctant
to liberalize the market for farm produce, making
it difficult for the government to couple FTA
pacts with procurement of resources as China does.

Mimuroto said that while a battle over
resources would be terrible, the isolation
scenario was more serious because Japan would be
left behind China in procuring resources based on
market mechanisms.

Horii, who played a key
role in drawing up the scenarios, said Japan
should use its scientific technology as a trade
weapon, furthering research and development in the
fields in which it has an edge, such as
development of automobiles powered by fuel cells,
clean coal technology and bio-energy.

"Japan should make good use of its
technology when dealing with China. Japan has to
use scientific technology as its diplomatic card,"
he said.

The global economy is in the
midst of a sea change regarding resources and
energy. The memory of high oil prices caused by
the two oil shocks has faded. When oil prices
hovered between $10 and $20 per barrel from the
late 1980s to the 1990s, Japanese people seemed to
cling to the belief that oil could be bought on
the free market.

But since September 11,
2001, concerns about geopolitical risk resulting
from political instability in the Middle East have
mounted. With supply failing to meet China's and
India's demands for energy, recent oil prices have
been hovering at more than $60 per barrel.

Hatanaka Yoshiki, head of the Energy and
Environment Program at the International
Development Center of Japan, said China, the US
and Europe acted with the understanding that
petroleum was a strategic resource.

"Japan
still strongly believes oil can be purchased with
money. The government should realize the energy
problem is a present, imminent danger. It should
use all of its resources, including political
power, diplomacy, defense and scientific
technology to address it," he said.

It
remains to be seen whether Japan can overcome an
energy crisis that would affect the future of the
country.

China fomenting energy
crisisBai Zhili, who teaches Japanese
politics at Beijing University's graduate school,
visited Japan early in March to do research on the
nation's public services, which is his area of
expertise. However, his trip to Japan had another
purpose. Bai wanted to know how much Japanese
sentiment toward China had worsened because of the
antagonism between Japan and China over maritime
resources in the East China Sea.

"Chinese
people are increasingly interested in energy
security, because if the energy supply stops, the
country's economic growth also will stop,
depriving the population of 1.3 billion of jobs,"
Bai said. "As for the dispute over maritime
resources in the East China Sea, Chinese people
think Japan is destroying China's energy
security."

Bai said he had been concerned
that the antagonism caused by the dispute would
worsen the two peoples' feelings toward each other
and might deteriorate into war. However, during
his trip to Japan, he found that Japanese people
were far less upset by the dispute than the
Chinese.

Because of the explosive increase
of China's energy consumption, many Japanese
specialists have started to call that nation a
"resource-gorging country".

China is the
sixth-largest oil-producing country in the world,
churning out about 170 million tons a year.
However, domestic oil consumption resulting from
the rapidly growing economy surpassed domestic oil
production and China became a net oil importer in
1993.

According to statistics compiled by
British Petroleum (BP), a major oil firm, Chinese
consumption of oil exceeded that of Japan in 2003,
with China becoming the second-largest oil
consumer in the world after the US.

According to the 2004 World Energy Outlook
released by the International Energy Agency in
October, China's oil imports in 2030 will reach
about 500 million tons, an amount equivalent to US
imports.

The major cause for China's
growing petroleum consumption comes from the
drastic increase in car ownership. To ease
congestion in Beijing, car access to arterial
streets is restricted, with vehicles only allowed
to use the city's main streets on designated days,
according to the number on their license plates.
Despite such measures, the number of cars on
Chinese streets is expected to quintuple by 2020.

However, it is not only petroleum China is
"gorging".

"The demand for steel is
increasing at a surprising rate in China because
the country has become the world's factory, where
the manufacturing functions of the whole world
have been concentrated," said Sugimoto Takashi, a
professor at Osaka City University's Graduate
School of Creative Cities.

The drastic
increase in demand for raw materials has caused
their prices to skyrocket. The price of iron ore
rose by 70% in fiscal 2005 from the previous year,
and that of coking coal more than doubled during
that time. "A 70% increase in iron ore prices has
never been observed in history," Sugimoto said.
This unprecedented price surge has gradually
started to affect Japanese industries. A temporary
shortage of steel forced Nissan Motor Co to
suspend operations at its Oppama plant in Kanagawa
prefecture and two other domestic plants for five
days in November and December.

Nippon
Steel, a major steel producer, has asked
automobile manufacturers and appliances makers to
understand the reason the company had to raise
steel prices. "According to our calculation, the
price surge pushed up cost in the whole steel
industry by 1 trillion yen [$9 billion]. We can't
deal with it by ourselves," said Toru Obata,
general manager of Nippon Steel's Raw Materials
Division-II.

Since the two oil shocks in
the 1970s, Japan has promoted petroleum stockpiles
and development of energy-saving technologies.
China, which was energy self-sufficient at that
time, will finally start to stockpile petroleum
this summer.

China is also lagging behind
in energy-saving measures. Many specialists point
out that the lack of experience with oil shocks
has made China increasingly concerned about
possible energy shortages.

Considering the
economically close relationship with the country,
Japan would inevitably be affected if China
develops an energy crisis. "Japan should take
actions to enhance energy security in the whole
Asian region by helping China and other Asian
countries set up systems to stockpile energy
resources and provide them with energy-saving
technologies," said Ken Koyama, senior research
fellow at the Institute of Energy Economics,
Japan.

It is time to consider the
Japan-China relationship in light of natural
resources and energy.

Japan losing sway
over Middle East oilJapan and 120 other
nations, as well as four international
organizations, are currently competing through
elaborate exhibitions at the 2005 World Exposition
in Aichi. But it is not well known that the United
Arab Emirates (UAE), the largest crude oil
exporter to Japan, suddenly withdrew from the
event.

The UAE said in September 2003 it
would not take part in the event, even though it
previously had said otherwise. A senior UAE
government official gave Japan no reason other
than that it had been decided by the country's
information and cultural affairs minister.

The royal family has virtually complete
power in the UAE, which has no parliament, and
largely bases its decisions on human
ties.

Sources close to the Japanese
government said some members of the UAE royal
family may have changed their view of Japan. Few
facts are known, and many incidents followed the
UAE's decision.

Britain's Prince Charles
and French President Jacques Chirac visited the
UAE to attend the funeral of former UAE president
Sheik Zayed bin Sultan al-Nahyan, who died last
November. Kawaguchi Yoriko, a special assistant to
the prime minister, also attended the ceremony.

At the time, many nations saw a change in
leadership as an opportunity to strengthen ties
with the UAE. "It's difficult to say that Japan
has a knack for dealing with oil-producing
countries when it comes to diplomatic matters," a
government official said. Nahyan was seen as an
ally of Japan. He awarded the rights to develop
oil sites to Japanese oil companies,
counterbalancing the sway of international oil
majors.

But Sheik Mohammed bin Zayed
al-Nahyan, the UAE's new crown prince and Nahyan's
third son, is the chief of staff of the UAE armed
forces. He is said to have developed close ties
with the US military. Within the Japanese oil
industry, some are concerned that the appointment
of the new prince, who tends to favor industry
giant ExxonMobil of the US, could change Japan-UAE
relations.

UAE Energy Minister Mohammed
bin Dhaen al-Hamili also pledged to provide Japan
with a stable oil supply, but hinted at a possible
decline in otherwise favorable bilateral
relations, saying, "The Japanese are not very well
known to the UAE public."

Meanwhile, China
is steadily establishing itself as a partner with
the UAE. In December, Dragon Mart, a wholesale
shopping complex of Chinese products, opened in
Dubai. About 3,000 home appliance, textile and
other Chinese companies are planning to set up
operations in the UAE.

Hatanaka Yoshiki
said China was trying to deepen economic relations
with the UAE due to the fact that their current
relationship was one-sided - China buys oil from
the UAE - and could be jeopardized in the face of
unforeseen circumstances. It will be difficult for
Japan, as the country's population continues to
age, to return to the high economic growth it once
enjoyed.

Naito Masahisa, the chairman of
the Institute of Energy Economics, Japan, said
Japan had little time left as a powerful country
that could take advantage of its influence to
secure oil from the Middle East.

Japan
will not be able to survive an energy war unless
it breaks from an idea that was valid until
several years ago, in which it was believed Japan
could cope with surging oil prices by growing
economically strong enough to pay more.

Asia as an oil battlegroundLike
the Middle East, Central Asian nations that became
independent following the collapse of the former
Soviet Union have become the center of a power
game among countries competing for resources.

Oil reserves are estimated at between 70
billion to 200 billion barrels in countries
bordering the Caspian Sea. Oil-importing countries
are paying close attention to Kazakhstan, which is
increasing its oil production.

Oil from
the Tengis oilfield in the country is mainly
exported through a pipeline built by the Caspian
Pipeline Consortium to the north of the Caspian
Sea to Novorossisk, Russia, which is located on
the coast of the Black Sea.

The Russian
government, a large shareholder of the consortium,
has agreed to a Kazakh request to triple its
exports, but with many technological problems to
be overcome, increased production will take some
time to realize.

Pointing to a map of
crude oil export routes, Baktykozha Izmukhambetov,
first deputy minister of the Energy and Mineral
Resources Ministry of Kazakhstan, stressed that
his government could redirect oil exports if
Russia did not increase exports from his country.

The route Izmukhambetov referred to is
seen as a tactic to influence Russia. The
Baku-Tbilisi-Ceyhan (BTC) pipeline is a route put
forward by the US that went into operation in May,
and is the first oil pipeline in the Caspian Sea
region that does not go through Russian territory
(see Pipelineistan's biggest game
begins, Asia Times Online, May 26).

Taking
advantage of Russia's failure to immediately meet
Kazakhstan's request, the US has proposed that
Kazakhstan export crude oil through the BTC
pipeline. Energy and Mineral Resources Minister
Vladimir Shkolnik expressed interest in the new
route and said his government was negotiating with
the US.

In a desperate attempt to secure
oil, China has barged into the battle over
resources between the US and Russia. Taking
advantage of its border with Kazakhstan, China is
building a 3,000 kilometer pipeline to its Uighur
Autonomous Region.

However, Japan is not
standing idly by. Japanese companies participated
in developing the Kashagan oilfield in Kazakhstan,
which is the largest oilfield discovered in the
past 30 years and is scheduled to begin production
in 2008. Japan also was involved in the
construction of the BTC pipeline, a project seen
as in Japan's national interest.

Last
year, then foreign minister Kawaguchi Yoriko
visited four countries in the Central Asian
region. "I've made the greatest efforts to realize
regional cooperation among the nations of Central
Asia. If they cooperate with one another and gain
stability as an integrated market, it will
contribute to the stability of the international
energy market," she said.

However, China
saw Kawaguchi's trip to the Central Asia as a push
for resources. An article in the September 1 issue
of the Chinese weekly Global Times, headlined
"Seeking political support with an eye on oil",
said Kawaguchi's visit showed vision.

A
high-ranking Japanese Foreign Ministry official
said her visit gained little news coverage at
home, but rival China gave her due credit.

The world map of energy resources is
changing every day. Under the initiative of
President Vladimir Putin, Russia is rebuilding
itself as a resources powerhouse, while the
collapse of the regime of Saddam Hussein in Iraq
has made Iran the second-largest oil-producing
country in the Middle East after Saudi Arabia.

Japan, lacking such natural resources,
needs to show all the more sensitivity toward the
actions of other countries.